Ikea Case Study

IKEA Sustainability Questions:
1. The first option that was presented in the case was for IKEA to own more forest land to
secure higher availability of woods. This can make sure that such forest areas are better
managed by the IKEA team, thus avoiding any unethical practices while sourcing woods for
their products. In terms of economic aspect, this would allow the company to have better
management over their production plan, thus reducing the cost associated with overall
production processes. In terms of the social aspect, IKEA will be able to offer FSC certified
woods to their customers, allowing them to trace the woods back to the forest, thus ensuring
higher quality. The second option is to raise the procurement standards. This would help
bring in positive effects to the environment in terms of better forest governance. The
company will also be able to manufacture good quality of furniture’s to their customers that
are sourced ethically, thus being able to commit to their overall goal of sustainability. In
terms of economic benefits, IKEA will be able to use raw materials that are more
standardized, therefore decreasing cost associated with procurement and also production.
Another option was to use recycled wood for manufacturing their products. This would be
helpful as many countries that it operates, like Europe has favorable regulations against
recycling. Hence making use of such subsidies will not only reduce raw material used but
also reduce cost incurred while operating in such regions. Looking at all the options, I
believe that IKEA should go for opting more particle board as this would decrease cost
associated with materials and packaging. This will in turn help lower the cost of the goods
that are sold by the company. Finally, it will also help the company use less wood in their
products thus becoming more sustainable.

2. There are various factors that has to be looked into in terms of the various options that were
presented in the case study. For example, if we look at the first choice, that is, vertical
integration of their supply chain by owning more forests, this will mean that the company
would be able to have more access to woods that are FSC certified. This will also help the
rely less on the more expensive woods from China. But the risk associated with this would be
the increase requirement of capital investment, forest rotation is not predicable and also
higher levels of accountability. The next option is to go for higher “procurement targets and
standards”. This would help the company boost its production efficiency and also practice
more governance when it comes to managing forest. Yet again, the risk involved includes
more time that is needed to manage and adhere to these standards and increased supplier
reliance. Another option was to use more recycled woods, but this would again require heavy
investment in terms of the infrastructure needed to support the transportation of materials and
also cost associated with processing the recycled wood. Lastly, the option that was chosen is
to use more particle board in their products. When we look at the risk involved with this
option, IKEA would need to invest heavily in terms of developing “particleboard production
capacity” in countries like India and also China. In addition to this, if IKEA decides to use
more particle board in their products customers might perceive it to be of cheaper quality due
to change in weight and how the end product feels. In order to avoid this risk, IKEA can try
educating their existing customers on how mixing particle board in their products can
produce positive environmental effects and also highlight how the quality of their end
products won’t be comprised if it is used in its products. For this, IKEA can make sure that
high quality particle board is used and that their manufacturing process is more controlled in
terms of quality management.

When we assess the overall supply chain of IKEA, there are certainly some risks that the
company can face in the coming years, if they don’t do contingency planning. Some of them are
as below:
Scale: 1-5
 Supplier Risk (Financial or Management Instability)
Probability: 80% or 4 out of 5
Impact: 5 or $1,000,000 lost profit
Therefore,
Risk= 4 x 5 or .80 x $1,000,000
= 20 out of 25 or 800,000
 Climate Change Risk (natural disasters can disrupt movement of goods within the spply
chain)
Probability: 75% or 3.75 out of 5
Impact: 4 or $800,000 lost profit
Therefore,
Risk= 3.75 x 5 or .75 x $800,000
= 18.75 out of 25 or 600,000
 Raw material shortage (Supplier Plant shutdown, economic instability in supplier’s place)
Impact: 5 or $1,000,000 lost profit
Therefore,
Risk= 2.5 x 5 or .50 x $1,000,000
= 12.5 out of 25 or 500,000
 Quality Issues and product recall

Impact: 3 or $600,000 lost profit
Therefore,
Risk= 1.25 x 5 or .25 x $600,000
= 6.25 out of 25 or 150,000
3. When we look at how far the company has come in terms of its sustainability initiatives, the
progress is so far very impressive. One of the most appreciated initiative that was taken by
IKEA was to remove all kinds of single use plastics from its products that are sold in its
stores globally. This is now mainly focused on their home furnishing range, in order to create
a more positive environment. Examples of this can range from items like plastic cups, plates
etc. To support this initiative, the company has also introduced disposable materials in all the
IKEA restaurants, where items like bowls, plates, cups, and straws that were previously made
of plastic are now being replaced by paper, metal, and bamboo.
In addition to this IKEA has also started going for less parts when it comes to manufacturing
their products. For example, for sofas were a big challenge to the company as it was not
possible to flat pack it during transportation. But now, the company has changed this by
reducing the parts used from 122 to just 13. This resulted in lesser usage of packaging
materials and also space used in trucks and containers, leading to reduced emissions while
transportations. All these initiatives are once again contributing to the People & Plant
Positive strategy mentioned in the case study, as it results in positive impact on the
environment and also the customers. Currently, IKEA is 100 percentage sourcing woods
through sustainable methods even in countries where managing forests is quite challenging,
as per their website. This shows that they were able to reach their 2020 goals. It is also
mentioned that by 2030, the company is aiming to decrease their climate footprint by 70 per
cent for every product they manufacture and sell in their stores.

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IKEA Sustainability Questions:

products thus becoming more sustainable.

terms of quality management.

 Quality Issues and product recall

of plastic are now being replaced by paper, metal, and bamboo.

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